The Boardroom Awakening: Can Corporate Governance Survive the Sustainability Reckoning?
The ESG narrative has become familiar but does not yet confront the challenges of a world where interest in sustainability is waning in some regions, political and economic divides are widening, and technology is reshaping the rules of the game. How can boards maintain momentum on climate and social issues when governments are focused on regulation and public interest is fractured? What will it take for corporate governance to adapt to trends such as nature and biodiversity loss, AI, shifting global power dynamics, and evolving definitions of fiduciary duty?
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses whether corporate governance can survive sustainability with Frederik Otto, Director of Advisory and Head of Europe at global consulting and standards firm AccountAbility. His expertise is at the intersection of sustainability leadership, strategy, and governance. Previously, he founded and led The Sustainability Board, a globally recognised think tank for sustainable leadership and corporate governance. He was the Global Head of Client ESG & Advisory and subsidiary board director in two Asian countries at The Adecco Group and is an ally of the Council for Inclusive Capitalism, a Salzburg Global Seminar fellow, and an associate member at Chapter Zero. He is a well-published expert on board-level sustainability and ESG preparedness.
“The purpose of the company is not just to provide profits to shareholders, but to serve all of their stakeholders.”
Frederik starts by explaining that sustainability is intricately tied to governance through stakeholder management and engagement. He recalls how the topic gained traction from 2017 to 2019, with influential figures such as Larry Fink of BlackRock and the US Business Roundtable emphasising that a company’s purpose extends beyond delivering profits to shareholders. Instead, it must also serve all stakeholders. That narrative led to a push for better ESG oversight, where boards were increasingly pressured by shareholders, employees, clients, and regulatory organisations to consider sustainability factors. Frederik highlights that governance plays a critical role in ensuring these issues are addressed and integrated into corporate oversight.
“The last five years have been quite the journey for sustainability.”
Frederik acknowledges that there is a sense of ideological fatigue around terms such as ESG and sustainability, and these words may even have become divisive, but the underlying issues remain critical. Sustainability includes climate, nature, human rights, social, technological, and geopolitical risks alongside significant opportunities. He stresses that a board’s fiduciary duty includes ensuring such matters are given due consideration, regardless of the language used to frame them, and so boards should look beyond the terminology and focus on the substantive risks and opportunities these issues present.
“We were seeing all these shiny sustainability reports and board disclosures… …that were very explicit in how the corporation is providing value to all sorts of stakeholders.”
Frederik explains how the drivers of sustainability have shifted. While employee activism and stakeholder pressure were dominant five years ago, economic challenges such as inflation and layoffs have reduced their influence. Particularly in Europe, regulators have stepped in to fill this gap with legislation such as CSRD and supply chain directives. American businesses operating in Europe are also subject to these stringent regulations due to the Brussels effect, which extends European standards globally. Frederik believes boards must stay ahead of these changes and consider sustainability from both a regulatory and strategic perspective to remain effective.
Frederik highlights three key sustainability trends emerging for the future:
- Nature and Biodiversity – Risks such as biodiversity loss are gaining attention, along with opportunities like nature-based solutions.
- Artificial Intelligence – AI impacts businesses through changes to business models, operational challenges like cybersecurity, and ethical considerations.
- Geopolitics and Geo-economics – Global hostilities, trade restrictions, and national security concerns related to climate change are influencing board agendas.
Frederik emphasises that these trends demand a strategic approach, as they present organisational risks and opportunities.
“It is often good to have a dedicated committee where the work is getting done”
Frederik describes ongoing debates about whether sustainability should be handled by a dedicated committee or integrated into existing ones. A separate committee allows for more focused discussions for organisations with significant environmental and social risks. However, this depends on the organisation’s size and context. He believes sustainability issues may not receive sufficient attention during board meetings without a dedicated committee. He also stresses the importance of intra-committee collaboration, ensuring that sustainability considerations inform audit, remuneration, and broader governance discussions.
“Do more scenario planning, do it more provocatively, and look as far as possible.”
Frederik stresses that boards must prioritise long-term sustainability goals alongside immediate operational challenges. He identifies three core responsibilities for boards: routine governance, crisis management, and future planning. He emphasises that robust scenario planning is vital for proactive governance, urging boards to explore even unlikely but plausible future scenarios. Tools like the Oxford Scenario Planning Approach help boards explore plausible futures, even those that seem remote, and align corporate strategy with potential long-term outcomes. Frederik believes this forward-thinking approach is key to prioritising sustainability issues. He believes aligning corporate strategy with these scenarios can help organisations prepare for various outcomes, ensuring sustainability issues remain integral to governance. He also encourages boards to dedicate sufficient time during meetings to address these long-term topics meaningfully.
“Often the corporate strategy is not reflected in the board documentation, let alone the sustainability strategy.”
Frederik identifies stakeholder governance as a hallmark of effective boards. He praises examples such as Rio Tinto, which restructured its governance and engaged directly with affected communities following a significant incident. Good boards, he explains, go beyond traditional practices to understand and address stakeholder needs. They ensure their governance documentation aligns with corporate strategy, particularly sustainability commitments. Frederik believes integrating stakeholder considerations into decision-making and governance structures is key to fostering alignment and accountability.
The three top takeaways for effective boards from our conversation are:
- Align the strategic, strategic intent between organisation management and the board, removing terminology
- Remove the words sustainability and ESG and consider these as global issues, systemic risks, and opportunities.
- Try to forecast better and spend more time on talking and thinking about the future.
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